My main question is how would people even know that some of the coins are no longer in circulation? I guess scarcity and the supply/demand will take force, but the loss of coins to the BTC economy could be a bad thing.
No it wouldn't. The only problem will be when the maximum resolution reaches a limit, i.e there won't be enough decimal places to represent fractions of a dollar. That's a long way from happening though, and as far as I understood it, the maximum number of digits can be increased.